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What Economists Have Learned: A Continuing Conversation

Now that the elections are over, including the final determination that Florida chose Obama, the pundits are quickly finding new positions. We now hear that the Republicans may be doomed forever if they don’t figure out how to sell their ideas to single women, Hispanics, Blacks and the gay community. It’s shocking that the pundits aren’t advocating Republicans actually change their beliefs – but instead recommending that they simply reengineer their appeal to these demographically important groups. That is offensive. How do you package to women a belief that abortion is not an option in the case of rape, since the baby is God’s creation? How do you convince Hispanics who have not self-deported that there’s a place for them in the Republican Party? How do you convince Blacks, Veterans, the disabled and retired (the dominant members of the 47% who you recently called parasites on the backs of job creators) that suddenly you can represent them by lowering the taxes they don’t pay? How do you convince the gay community to join your party when you refuse to allow them to exercise the simple right of forming permanent relationships with the same opportunities and privileges available in male-female relationships?

Before these new “talking points” emerged the pundits followed that famous axiom “it’s the economy stupid” as their guide to what would determine the outcome of the election. Suddenly these other issues are going to determine the future of the Republican Party. What they’ve lost sight of is that these issues, though central to the radical elements of the right in the Republican Party, are conceptually beyond resolution by the right wing because the issues are concrete and personal. The right wing will be unable to address these conundrums and will fall back on their simple minded but abstract economic appeals to two insidious forces driving the way their constituents think.

One force is that of fear, which over the course of the next four years will bring a laser-like focus on the continuing expansive role China will play in the world economy. As China asserts more aggressive independence through trade and unconventional power manifest with the cooperation of Brazil and India, it will trigger paranoia for conspiracy in this country. Europe will continue to flounder without a monetary union in place. The China syndrome will flourish.

The second force will come from the very success of the US economy which in part will be a cyclical upswing, and in part be due to the end of the fiscal deadlock in 2013. If you recall the period 1990 -2000 was a period of growth, dynamic innovation, surpluses in the federal budget and cyclical upswing following the Carter oil crisis and the Reagan recession. This should have led to more faith in the Keynesian fiscal management of the economy and in the balanced public/private sector US system under Clinton. It did not.
The second force is human nature revising history to feed the ego – hubris.  As success causes the successful to interpret their improvement to their genius, and not on the fact that they prospered and rose on a rising tide, we see hubris turn victory of the few into potential defeat for the rest. This misunderstanding of causation leads them into the arms of the seductive right wing that plays on this self-deception and self-aggrandizement. Remember the “I made it” vs. “we made it” controversy in this campaign? You have seen nothing yet. In the setting of the first force, a China syndrome, this force will recreate a Republican ground swell linked to the abstract appeal of an Ayn Randian individualist economic delusion. The seeds for this have been sown in this campaign.

The economic ideas and beliefs of the right wing of the Republican Party fly in the face of what economists have learned through systematic peer reviewed research, objective observation and analysis over the past 70 years. The phony ideas or beliefs of the right-wing about economics are as bereft of a rational basis as their social theories about rape and abortion, immigration, race and the impoverishment of the marginalized and the right to equal protection before the law for those with varying sexual orientations.

One of the profoundly destructive aspects of this particular election was the tremendous increase in the amount of economic nonsense that the radical Republican campaigns foisted as fact on the American public. The undoing of knowledge by this disinformation campaign is a major issue that economists must rise to challenge and correct.

Next time it should not be the case that a Nobel winning economist winds up being argued with about the meaning of research findings by a talking head whose only credential is that they’ve been able to develop a brand where “loud and offensive” is a recognized form of thought and acceptable creator of facts. The unfortunate moderator seemed to think that this represented two equal points of view thus there was balance. This is like the football coach that fields a team that looks like they can play instead of one that can play. The loss can be staggering.

The think tank talking head whose standard of economic knowledge is “a lie is as good as the truth if someone believes it” simply has to be put out of business. Economists need to take on the “focus group” snake oil seller posing and pronouncing as an expert. It seems more than the brave Paul Krugman should be out there taking on the challenge. Re-educating the population about what economists actually know is a major challenge that has emerged from this election cycle. Those who can shout drowning out the voice of knowledge with fear mongering and manipulation of half-truths with fake facts manufactured for the current argument need to be driven off the stage through relentless critique not censorship. The only censorship that is justified is a deaf ear to the teller of false tales. The next step is to debunk the right wing by taking the bull by the horns issue by issue and use the tools we have to disassemble the stage the false tales are preached from. My next contributions to this conversation will focus on dissection and dismemberment of the holy grails of right wing economics in this era.

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4 Responses to What Economists Have Learned: A Continuing Conversation

  1. Scott says:

    Dennis, how can we get back on track? Would you agree that spending is at least 50% of the problem. I tried for 15 years to spend my way out of debt and couldn’t manage to make it happen. Perhaps I don’t have the volume that the US has. What are your thoughts of the FHA and their projected losses that were recently announced? So while we are being distracted by the smoke and mirrors of immigration, healthcare, marriage equality, nobody is looking at the looming disaster that is our economic failure. What will we do when hyper-inflation hits? What will happen when we can’t afford to buy food. Farmers and ranchers are in business to make money as they have bills to pay too. However, I hope any small farmers or ranchers don’t die as they will have a 55% tax imposed on their estate that is valued over 1MM. With the price of land and equipment, it won’t take long to put them out of business either. Hope you know how to shoot and gather your own food.

  2. Dennis O'Donnell says:

    Scott , We are not off the tracks we are going slow on the tracks but we are coming to a fork where our fears are clouding our judgment about the reliability of the switchman and is confusing our ability to understand which fork to take.
    One fork is austerity the other is pro-growth. In economies that are most like ours austerity has made things worse. In every instance where we had accumulated debt to succeed when times were very difficult the pro-growth strategy has worked. Post-World War II, OPEC crisis, Reagan recession are examples where spending was the problem and the problem was there was too little and that was 50% of the problem in some cases. The problem was not hyperinflation but severe deflation of asset prices.
    We all depend on each other so farmers and ranchers depend on customers who work off the land and vice versa. Over the course of the 20th century we went from a society of 60% to 4% of the population engaged in agriculture directly. This provided the labor and capital so that we moved to be the most powerful and richest nation in the world by the end of World War II and beyond. Taxes on ranches and farms avoid inefficiency in the economy. Wealth must stand the test of the market. If that 56% of the population stayed on land the America you know would not exist. If those who inherit land can make it so productive that they can pay the taxes and keep the land then they have shown that we are better off as a society for them to stay there and become part of that 4%.
    The proper question is not whether, ” we can gather our own food,” the question is “should we gather our own food and not build the interstate highway system, the 747, the Internet, the world’s largest and most productive economy.” I live in the mountains of Montana. More food walks by my door every day that I can possibly eat and the farmers market from local gardens is so prolific the problem is choice not availability. Our problems are not production they are distribution inefficiencies linked to the inequitable and inefficient distribution of income.
    The switchman is our Congress and Executive Branch. Choosing the option to fall off the fiscal cliff (actually a slope) would be austerity and folly. To implement pro-growth strategies would make sure that we ultimately can pay our bills for infrastructure and consumer products.
    The ability to go out and gather your food is found in your choices. I prefer Montana Buffalo steaks, French champagne, Idaho potatoes, Vidalia onions, a Pinot Noir from Washington, broccoli from Mexico in the winter and squash in the summer to digging for potatoes ( or gold as my ancestors did) year-round barely surviving while growing old and breaking down while hungry. You might have noticed; I’m Irish.
    Mad Max BeyondThunder Dome is not coming as many fear, but an avoidable recession will be if we let the switchman choose austerity rather than the road to prosperity. Fear clouds judgment. This problem was overcome by Churchill’s nation when their days were darker than we have ever seen. This American is up to that standard and is not pathetic like the fear mongers preach treating many like fools from whom money is soon parted. In an ironic twist, they sell fear so they can drink single malt scotch while many buy that fear and are afraid to go shopping. Go figure.

  3. Scott says:

    I can understand what you are saying, but things I don’t agree 100% with. Not a lot elk travel through Manhattan or LA. So my concerns with food are the population areas of the US. But let’s look at the simplest of terms in a budget sense. We have capital expenses and operation expenses. I don’t disagree with debt, but I also don’t support the unrestricted borrowing either. Some austerity measures are needed as well as ways to increase revenue.
    I guess my question is what pro-growth measures are being placed in front of us? You can’t borrow money or get a job from a broke person. What do I have as an incentive to work harder and know that my taxes are going up because of that hard work? It just doesn’t impact the 250K and above people, but those of us below that level. Sure, I have earned a small savings and investments for future, but because of that foresight, I get to pay higher taxes on after-tax savings because I planned better.
    People got out of farming because it is hard work and you really can’t make a lot of money in it. Technology got involved and now we have drought resistant crops and GPS enabled fertilizers that can calculate spray patterns based on current weather conditions and direction of travel. It has made things better, but those products come with a price tag. Don’t forget to calculate the cost of fuel to get the items out of the ground and to your store. I can grow a garden, but I don’t think my HOA would like to see corn stalks in my flowerbeds.
    I’m not advocating for support yourself models, because someone needs to work at Best Buy, Target, Walmart and yes, even Taco John’s. But I am concerned with the mentality that a majority of people think 2 cars, a house, flat screen TV’s and iPhones are a right and not a privilege. The American Dream has become an American Right for a lot of people. I don’t mind paying more in taxes if I can get equal cuts in spending.
    Perhaps more people should think of it this way, “A cabin with plenty of food is better than a hungry castle.”

  4. Dennis O'Donnell says:

    Scott: The point may have been lost somewhere in translation but if we had all stayed in agriculture and the cities were 20% of the population and rural areas 80% we would likely be self-sufficient in this North American environment but poor relative to our situation today. Most people’s choice was to specialize with increasing dependence on outside sources for things like food in the cities but with the rural areas being increasingly dependent on outside sources for things like technology from the cities. By taking that risk we have all become better off in real terms as a result. That is how 4% can feed 96% and both sides have a rising standard of living. Many inequities arise but they are distributional. In 1650 Manhattan there were deer and wolves, in 1910 LA there were bears and mountain lions. We made choices that changed that.
    The pro-growth expenditures are those for infrastructure such as fixing and upgrading the electrical grid in the US, increasing the efficiency of cars, fixing /replacing bridges water systems and on and on. Also Increases in spending on security and safety, technology (a more broad based set of energy production choices), basic and translational research in medicine and healthcare to name a few. These produce tangible increases in productivity for labor, capital and management.
    What does not work is to lower taxes for the rich who tend to spend more than the rest of the population on imports, have a higher net saving rate than the rest (hording). These are especially destructive when they are not making investments because they see no profits when the infrastructure is faulty etc. (see list above) and retain earnings and do not leverage by borrowing from banks. In that case the economy shrinks because they shrink the income /expenditure stream. Lower taxes more and more of this downward spiral will occur in a stagnant economy.
    An investor seeking opportunity, todays politically labeled job creator, only create jobs for profit not for the full employment goals of society. That is fine, but not the only path to success for society. Pro-growth infrastructure investments lower costs of production in all categories creating pre-tax profits where none appeared before. This approach uses the market to find efficiency. Changing tax rates does not. Private investment rationally follows productivity improvements not the other way around. Innovation is a rare commodity. The logic where a tax increase must cause an equal reduction in expenditures fails to achieve this objective. In fact, it makes the stimulus vanish and becomes a drag on the economy. Leave tax rates alone, increase government spending by selling bonds to the rich getting their savings out of hoarding or importing and put to work in this economy and they will see reasons to invest the rest. That causes growth. It also pays off the borrowing and is voluntary. Financial investors (risk averse/no new idea real capital investors) bought bonds because it offered the best return on their savings. Remember there are no profitable private investments when the government offers the bonds.
    It is easy to confuse some about those demanding the expectation of equal opportunity to pursue,“ the American Dream,” by insinuating that they think they have a right to it. This is disparaging rhetoric, not valid, just sounds good. We do our best thinking when we stop being frustrated and are practical. See paragraph above.
    Castles and cabins are the stuff of a long lost feudal past. Today we have the possibility of a democratic market and a rich society with equal opportunity. It is messy.

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